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Nick Bhargava, Co-Founder of GROUNDFLOOR – Interview Series

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Nick Bhargava, Co-Founder of GROUNDFLOOR - Interview Series

GROUNDFLOOR is an American real estate lending marketplace. It was the first real estate crowdfunding company to achieve SEC qualification utilizing Regulation A+ since the regulation became operable through the JOBS Act. GROUNDFLOOR was purposely built to serve self-directed investors instead of institutional ones

You’re both a director and one of the co-founders of GROUNDFLOOR. What was the inspiration behind launching this crowdfunding platform?

My co-founder, Brian Dally, had years of experience to make telecom services more accessible to everyday individuals. Meanwhile I had a lot of experience in the securities and regulatory industries. We wanted to combine our respective strengths in a way that opened up high yield investment opportunities for everyone, not just the 1 percent. We eventually started with single-family residential housing because most people are familiar with this kind of asset from being homeowners themselves.

When the idea was conceived, we had no idea if there would be a market for it. We needed to first find an accessible regulatory framework that would allow them to test the business concept. We discovered the Invest Georgia Exemption (IGE), created in 2011 to help small businesses access capital. Being an intrastate offering rule, it was only available for Georgia companies, so both of us picked up and moved to Atlanta to launch GROUNDFLOOR. Because of IGE, we were able to fund $2 million in loans in Georgia, clearly demonstrating the demand for GROUNDFLOOR’s platform.

Over time, GROUNDFLOOR has grown considerably and is now open to investors in all 50 states.

 

Can you explain how GROUNDFLOOR connects investors with real estate developers?

We are focused on providing retail investors with high yield investment opportunities. A real estate borrower, someone who develops real estate for a living, secures a loan through GROUNDFLOOR rather than a traditional bank or a hard money lender to finance a residential real estate project. That borrower submits a loan application, and we vet the individual and the project to determine if we should originate a loan. Our underwriting is based on past experiences, amount of skin in the game and many other factors. If approved, the loan is assigned a loan Grade of A through G and a corresponding rate where Grade A loans are the least risky, with the lowest rate of return and Grade G loans are most risky, with the highest rate of return.

We have filed an offering with the Securities Exchange Commission (SEC) through which we sell securities. The proceeds of these securities are used to fund the loans we originate. The performance of these securities and corresponding rate of return is tied to the underlying loan. Investors can choose which securities, and therefore, which underlying loans, they wish to invest in.

Investors can choose to invest up to $10 increments to fund the loan. Once a loan is fully funded, the borrower draws money according to a draw schedule, and completes the new construction, renovation or rehab project. The property is then typically listed for sale. When the project sells or is refinanced, which is usually 6-12 months from the time the investor invested, the loan is repaid. The investor’s principal investment, plus all accrued interest, is deposited into the investor’s GROUNDFLOOR Investor Account. The cash balance in an individual’s GROUNDFLOOR Investor Account can be withdrawn or reinvested in other projects.

 

Are there any types of restrictions or quality controls in place to ensure that real estate developers can repay the loans?

When the borrower submits the loan application, our underwriting team works closely to vet the projects and the borrower. We also factor in the local real estate market. We don’t lend in markets we don’t like. When a loan is originated, we stay in regular contact with the borrower to ensure that the project is meeting deadlines, and we share regular updates with investors. Draws are not given out if the borrower is not making sufficient progress or has deviated from plan. If we think there could be delays or the borrower violates terms of the agreement, we can decide to step in and proactively put the loan in default, which can result in a stronger outcome for the investor because we pass through penalty interest. Most GROUNDFLOOR loans are first lien position, so the loan is backed by a physical asset, which is the land and structure.

 

What are some of the types of returns that can be expected by investors?

For the past six years, participants in GROUNDFLOOR real estate loans have earned annualized returns averaging 10 to 12 percent in a 6 to 12 month timeframe.

 

Are all investments currently in the United States? Is there a preference for certain cities or states? If yes, could you describe these.

While anyone in the country can invest in GROUNDFLOOR with only $10, the company focuses its lending in 30 states.

 

You were an early advocate for the JOBS Act, were you happy with how the JOBS Act was written? Was there anything that should have been left out?

I am generally happy with how the act turned out. The different provisions are designed to help companies of different sizes, and each provides value for companies in different situations. I don’t think any particular provision should have been left out.

 

What would you like to see changed in a future version of the JOBS Act?

We have seen Reg. A be used heavily by real estate issuances. I think there is value beyond this use case, particularly for mid-sized privately held companies that want to access public market capital. The cap for Regulation A will soon change to $75M, which will be more appealing to companies of that size. I think we could see some novel offerings in that space.

 

Is there anything else that you would like to share about GROUNDFLOOR?

There is no other company that offers what GROUNDFLOOR does for individual investors and borrowers. We’ve created a new category and offer completely new products.

Why hasn’t anyone copied us? One reason is because regulatory innovation. Providing investments directly tied to this type of high quality, high yield real estate credit is not something that has been done for the retail investor. GROUNDFLOOR was the very first company qualified by the Securities & Exchange Commission to offer this type of investment via Reg A for non-accredited and accredited investors alike, and because of the enormous amount of infrastructure we put into place, we can continue to iterate on our product where others cannot.

I really enjoyed learning about your company, readers and/or investors who wishes to learn more may visit GROUNDFLOOR.

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Antoine Tardif is the CEO of BlockVentures.com, and has invested in over 50 blockchain projects. He is also the founder of Bitcoinlightning.com a news website focusing on the lightning network, and a founding partner of Securities.io

Crowdfunding

Andrew Adcock, CEO of Crowd for Angels – Interview Series

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Andrew Adcock, CEO of Crowd for Angels - Interview Series

Andrew is the Chief Executive Officer at Crowd for Angels an equity crowdfunding platform. He often attends and speaks at events on Crowdfunding, Alternative Finance and Investment. Previously, he worked at NinetyTen, a web application developer and provider of Private Social Networks, whose clients included Nokia, Channel 4 and Shop Direct

You were one of the original Co-Founders of Crowd for Angels. Can you discuss the inspiration behind launching this business?

I was indeed one of the Founding team at Crowd for Angels, but the inspiration for launching the company comes from our Director Tony de Nazareth, who combined his decades of financial knowledge with the ‘social media’ approach. This was to get the community involved when funding and supporting a business, thereby creating brand advocates that not only financially supported the aspirations of a company but also became a voice and customer of the company.

How much do you involve yourself in the pitch decks and packaging the deals that are found on Crowd for Angels?

I am involved in most companies that seek to list on Crowd for Angels. I take a genuine fascination in the lives of start-ups and companies looking to expand. Each has its own story and passion, which I am enthused by. Having raised funds for my own company and invested in many others, I hope to provide insight for the company.

What type of due diligence is performed on the companies that are listed?

A lot! Crowd for Angels breaks due diligence down into 3 key areas, firstly, we conduct factual checks such as KYC, AML, PEP, Credit Checks on the directors, reviewing accounts produced by the company and verifying facts stated on their pitch. Secondly, we conduct market checks, for instance, is the product available and as described, is there an addressable market, is the valuation reasonable, what legal challenges the company might face and is it ethical. The final check is one of sanity, which is not only tested by Crowd for Angels, but also by our Angels, who will ask the company their own questions.

What are some of the main reasons behind companies being turned down for listing on the platform?

There can be a number of reasons but a few we find most common are as follows:

  • The valuation is simply too high in comparison to the companies position
  • The company does not provide documentation (business plan, management accounts, incorporation documents)
  • The product is too early-stage or not yet developed
  • The directors have no ‘Skin in the Game’

What are the biggest benefits of equity crowdfunding?

I personally believe the biggest benefit is the ability to create brand advocates, people who support your business financially and become active customers, drawing in others to check out your brand, whether that is through word of mouth or social media.

Could you give us a success story of a company that raised funds on the Crowd for Angels platform?

One of my favourites is a company called CNPPS. A young entrepreneur, who was studying engineering at university at the time had created a permeable pavement solution that used recycled aggregate. Now that might not sound as fascinating as an app, but our world is covered in roads and pavements. His solution, used 100% recycled aggregate and was carbon negative, furthermore, it allowed water to pass through. Working with the entrepreneur we were able to raise £100,000 for a phase of testing that has now led on to a commercial contract and further funding for the company.

What made it interesting was the ethical approach the company had took to change an old industry, the tenacity the entrepreneur showed never giving up and that a business can truly be grown from the ground up, out of university none-the-less. So far in a 2 year period, the company’s valuation has increased 4 fold, delivering a solid return for the Angels involved.

Crowd for Angels is one of the few crowdfunding platforms that accept bitcoin. How many investors use bitcoin, and where do most of these investors originate from?

Yes, we have been accepting cryptocurrency as a form of payment for investment since early 2016. At that time, we integrated this payment option to allow foreign investors to invest in UK companies without the costs and time associated with international bank transfers. Initially, we saw a number of Australians, Chinese and mainly Asian investors utilise this form of payment. However, as bitcoin and other cryptocurrencies gained in popularity, we did see growth in European investors utilising cryptocurrency. Partly this is due to the gains they might have experienced and I believe the convenience cryptos offered. Now, we have over 14,000 members registered with a cryptocurrency wallet on our platform, with many of them in Europe.

A few years ago, the ANGEL token was released. What are the use cases for this token?

The ANGEL token was released to drive down the user acquisition cost of investors whilst rewarding stakeholders for interacting with our platform. It is hoped that when users interact and share content in the network, say an investment they had just made in a fledgeling company, that they would be rewarded with ANGEL. Crowd for Angels has then committed to buy back and burn ANGEL linked to the revenue generated from our pitches, thus creating a virtuous circle. We hope in the future, our Angels will also be able to use the ANGEL token as a method of payment towards an investment.

How do you see digital assets and digital securities eventually merging with crowdfunding?

Crowdfunding utilises technology to allow the masses to invest small amounts into pitches, but the shares are usually held with a nominee and should you wish to sell them or give them to someone else, it is difficult. Therefore, the integration of digitalised assets should be a no brainer, because it potentially gives the control of the asset back to the investor and follows a set of rules, that can’t be broken. In a utopian world, you would allow investors to purchase, hold and trade any assets that they wish. With the blockchain, you benefit from an immutable ledger that would record these transactions, giving you efficiency and transparency. I believe we are only a stones throw away from some big changes.

Is there anything else that you would like to share about Crowd for Angels?

We are always open to ideas, a conversation can go a long way.

Thank you for the interview. Readers who wish to learn more may visit our Crowd for Angels business listing or the Crowd for Angels website.

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Republic Acquires Fig, As Crowdfunding in Gaming Grows

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In an exciting development, equity crowdfunding platform, Republic, has just announced the acquisition of Fig.

Fig is also a crowdfunding platform, however, with a specific niche – gaming.  Gaming has never been bigger, and represents a perfect avenue in which developers and investors, alike, can benefit from such methods of capital generation.

While Fig has, indeed, been acquired by Republic, the companies have noted that the status quo will remain for now.  Each entity will continue to operate as they have been, with a merger between platforms being a gradual process, over time.

Equity Crowdfunding

What separates both, Fig and Republic, from the competition, is their approach to crowdfunding.  Due to cost, complexity, compliance measures, and a myriad of other reasons, traditional crowdfunding platforms do not reward investors with equity/dividends from listed companies.  Rather, they typically provide investors the promise of a product, or future access to a service.

What about those that believe in the potential of gaming, and associated financial windfalls, but are not gamers themselves?  How can they contribute and still receive something in return?  The answer is increasingly common – equity/dividends.  Check out the following article to learn more about this form of crowdfunding, and the benefits associated with it.

What is Equity Crowdfunding?

Commentary

Upon announcing the acquisition, representatives from each, Republic and Fig, took the time to comment.

Justin Bailey, Founder of Fig, stated,

“Joining Republic means more investors, more ambitious games, greater exposure, and the opportunity for higher returns. I’m ecstatic Republic contacted me and excited about how this acquisition will further aid us in our mission to empower independent developers”

Chuck Pettid, CEO of Republic’s Funding Portal, stated,

“When I first talked to Justin I was blown away by his industry knowledge and connections to the best game developers in the world. It’s no wonder Fig has been so successful.”

Republic

Founded in 2016, Republic is an equity crowdfunding platform, which operates out of New York, New York.  The company has noted that their overarching goal is to provide investors, of any ilk, access to quality opportunities – essentially ‘democratizing investing’.

CEO, Kendrick Nguyen, currently oversees company operations.

Fig

Founded in 2015, Fig is a crowdfunding platform operating out of San Francisco.  The company maintains a unique and focused approach towards the development and funding of video games.

CEO, Justin Bailey, currently oversees company operations.

On the Rise

In a time when capital is notoriously hard to generate, equity crowdfunding has garnered the attention of many.  This is no more obvious than another recent partnership, developed between StartEngine and Kevin O’Leary (aka Mr. Wonderful).  While Kickstarter and Indiegogo may be the most notable names when discussing crowdfunding, StartEngine is a much closer rival to Republic.  This is due to the focus of each platform on equity based offerings.

Mr. Wonderful Aligns Efforts with Equity Crowdfunding Platform ‘StartEngine’

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Defying the Odds with MERJ, StartEngine, and LiquidPiston

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Defying the Odds

While the world struggles to adapt and persevere, through the on-going COVID-19 pandemic, there are a select few companies that have managed to continue down a path towards success.

Instead of focusing on the trials and tribulations, being felt by COVID-19, we will take a brief look at a few of these companies, which find themselves thriving during difficult times.

 

MERJ

First up is MERJ Exchange.  This Seychelles based exchange has established themselves as a leader in the burgeoning digital securities sector.  Not only do they support a variety of digital securities on their platform, they do so in a regulated manner.

Their potential is underscored through just a quick glance at their recent growth.  The company notes that while most of the world’s stock exchanges saw a 7% decline in capitalization over the past year, they were able to achieve growth of 325%.

MERJ CEO, Edmond Tuohy, recently took the time to comment on their recently seen growth, stating, “This tremendous growth we’re seeing is a reflection of the rapid pace at which financial markets are shifting towards more efficient structures…MERJ is disrupting the traditional stock exchange model, breaking down cross border barriers and streamlining processes, ultimately reducing costs for, both, investors and listed companies”

As a regulated exchange which hosts both, traditional and digital, securities, MERJ appears to be well positioned to succeed in, both, the now and future.

LiquidPiston

This Bloomfield, Connecticut, based company has recently completed, what is being touted as, one of the quickest Reg. CF raises, to date.

The technology on offer, by LiquidPiston, is built on the idea that rotary engines hold untapped potential in the ICE market.  Where past examples, such as the commonly used Wankel design, failed, LiquidPiston looks to succeed.  Their efforts have resulted in engines boasting,

  • Scalable power bands
  • Compact designs
  • Hybrid vehicle integration
  • 30% jump in efficiency over gas & diesel

Hosted through StartEngine, the LiquidPiston crowdfunding campaign was able to entice over 3000 investors into taking part in a mere 9 hours.  The result?

  • $51.6 million valuation
  • $1.07 million raised

With promising applications in, both, the military and aerospace sectors, next-gen rotary engines designed by LiquidPiston have a bright future.  The company notes that they intend on maximizing the potential of their technology through efforts which include licencing agreements.

In a time where VC has dried up, as noted by many, LiquidPiston’s ability to not only achieve their goal, but in record time, is an impressive feat.

StartEngine

Of late, crowdfunding platforms have really pushed the narrative that they are the gatekeepers to funding during times such as these.  With the aforementioned LiquidPiston raise, they appear to be on to something.

StartEngine CEO, Howard Marks, states,

“I’m thrilled that Liquid Piston’s raise was successful. In fact, Liquid Piston’s raise is the fastest Reg CF campaign of all time on our platform…StartEngine’s mission is to help entrepreneurs achieve their dreams, and I hope that Liquid Piston is able to use the $1.07M they raised and their thousands of new investors to achieve theirs.”

Further cementing this narrative is the recent announcement that Kevin O’Leary, aka Mr. Wonderful, has become a crowdfunding convert;  So much so that he has now become not only an investor in StartEngine, but an active team member.

Mr. Wonderful Aligns Efforts with Equity Crowdfunding Platform ‘StartEngine’

Alternative Offerings

While the companies listed here today wildly vary in what they have to offer, there is a common trait amongst them – an alternative to the norm, and a forward looking perspective.

MERJ has decided that digital securities will hold a prominent place in the future of investing.  They have taken this stance and built a promising platform around supporting them.

StartEngine has decided that – especially during turbulent times – SMEs can most benefit from capital generated through crowdfunding;  Rather than the more traditional ‘VC’ route.

LiquidPiston has decided that there is, indeed, a place for internal combustion engines moving forward.  The key to making this work? Perfecting what was once heralded as a radical, and promising, design (rotary engines).

By breaking free of the mold, these companies have managed to, both, intrigue and entice investors into paving the way towards continued success.

In Other News

While the companies discussed here may be thriving, there remain a plethora of issues which have arisen during the pandemic.  The following article takes a look at a few of the issues which have caught our eye during this time.

The COVID-19 Effect

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